‘Financial Terms’ Every Home loan Borrower Should Know

Planning to buy a home but are scared of various rates that RBI revises? So, rather than getting scared of these financial terms, a home loan borrower must try to understand their concepts. Remember that having a clear understanding of anything is always better to make decisions as an improper understanding can land you in soup after the sanction of a home loan. So, scroll down the blog post and plan availing of the home loan according to the current rates by understanding what these terms mean:

Repo Rate

Money is important to run life and the banks are here to help you with certain fundings in order to fulfill the financial requirement. But, the banks also have a higher authority to report the Reserve Bank of India also known as the RBI. This highest banking authority manages monetary circulation in financial institutions like banks while assessing the economic condition of the country which includes inflation and GDP [Gross Domestic Price]. The banks also run out of cash sometimes and approach the Reserve Bank of India to lend some money. The RBI disburses the asked amount and charges the banks with a particular interest rate. This rate is known as the Repo Rate. The bank that availed monetary support from the Reserve Bank of India has to make repayment of the same amount as per interest rate. The RBI revises Repo Rate in a timely manner particularly when the authority feels like to balance liquidity and inflation. The change in this rate allows better money circulation in the market as the Repo rate leave an impact on all three major identities like RBI itself, banks that approaches RBI for the monetary support and the common man alias the home loan borrower.

Reverse Repo Rate

This financial term sounds opposite to the one mentioned above but it has nothing to do with the Repo Rate. In fact, the Reverse Repo Rate commonly known as RRR is the interest charged by the RBI on the banks who prefer investing in low-risk Government securities instead of offering financial funding to people for making investments. Again, this financial term is monitored by the Reserve Bank of India and is revised while keeping liquidity and other economic factors in mind at regular intervals. The Reverse Repo Rate is also useful to ensure the smooth flow of money in the market. The fluctuation in RRR directly impacts the home loan borrowers and banks both as the calculation of the amount to be sanctioned, sanctioned amount and already paying EMIs [Equated Monthly Installments] changes.

Base Rate

This financial term is too easy to understand as the banks offering a minimum interest rate on availing home loan and other fundings are known as the base rate. This definition replaced the earlier used financial term that was Benchmark Prime Lending Rate [BPLR] in the year 2010. All banks have rights to decide the Base Rate that which they wish to offer home loan and other loans. Although, the Reserve Bank of India keeps a tab on this rate indirectly. The revision in Repo Rate by RBI leaves an impact on the banks. The Base rate too is important to know as you the home loan borrower has to manage the budget and EMIs at a time.

Cash Reverse Ratio

Also known as CRR, this is an important financial term people must know about. According to this rate, the banks are required to deposit a certain amount of money with RBI as security. This deposition of security is calculated according to the increased deposit in the bank’s balance sheet. For example, the bank with an elevation of Rs.100 in their own deposit is then required to credit the Reserve Bank of India [RBI] with Rs. 4. The amount to be deposited in RBI is calculated according to the increase in bank’s deposit. The fluctuation in the Cash Reverse Ratio [CRR] impacts both loan lender and home loan borrowers but in a different manner.

Statutory Liquidity Ratio

All banks have to maintain a specific percentage of their Net Demand and Time Liabilities. This specific and regularly maintained sum of money is popularly called as NDTL. The financial institutions such as the banks have the option to maintain this amount either in Cash, Gold or in Government Securities. NDTL is important to be paid when asked for saving deposits. Apart from this, there is a particular time limit after which the time liabilities can be used. This valuation of these things on the liquid assets and NDTL is known as the Statutory Liquidity Ratio [SLR]. Currently, The Reserve Bank of India has granted permission for 2 % more statutory liquidity ratio [SLR] to match up to the liquidity coverage ratio. At present, the Statutory Liquidity Ratio [SLR] is at 21.50 percent.

Home buyers must consider all these financial terms while applying for the home loan as all these definitions can help you save more on a property purchase.

Shilpa Sardare Jain is a journalist and works as a content writer with us. Her journalistic background helps her cater the viewers with accurate news about everything around. She is experienced at writing articles, blogs, features and news related to different genres. She started her career with News24 News channel and then worked with a leading digital media channel One India News and few others. Shilpa Sardare Jain is a joyful person who loves to explore new places and food when not working. Also, she has the zest for reading autobiographies of politicians who took the world by storm.